Entrepreneurial Structure
The entrepreneurial structure as shown in Exhibit 1, is the most elementary form of structure and is appropriate for an organization that is owned and managed by one person.
Exhibit 1
The advantages that an entrepreneurial structure offers are:
Quick decision-making, as power is centralized
Timely response to environmental changes
Informal and simple organizational systems
The disadvantages of the entrepreneurial structure are:
Excessive reliance on the owner-manager and so proves to be demanding for the owner-manager
May divert the attention of the owner-manager to day-to-day operational matters and ignore strategic decision
Increasingly inadequate for future requirements if volume of business expands
Functional Structure
As the volume of business expands, the entrepreneurial structure outlives its usefulness. The need arises for specialized skills and delegation of authority to managers who can look after different functional areas. A typical functional structure is shown in Exhibit 2.
Exhibit 2
Note that specialization of skills is both according to the line and staff functions. The functional structure seeks to distribute decision-making and operational authority along functional lines.
CEO
PR Legal
Finance Marketing Personnel Production
Owner-Manager Employees
The advantages that a functional organization offers are:
Efficient distribution of work through specialization
Effective delegation of day-to-day work
Providing time for the top management to focus on strategic decisions The disadvantages of a functional structure are:
Creates difficulty in coordination among different functional areas
Creates specialists, which results in narrow specialization, often at the cost of the overall benefits of the organization.
Leads to functional and line and staff conflicts
Despite the disadvantages, the functional structure is quiet common and exists in its original or modified form as the organization evolves from the initial to the mature stages of development.
Divisional Structure
The structural needs of expansion and growth are satisfied by the functional structure but only up to a limit. There comes a time in the life of organization when growth and increasing complexity in terms of geographic expansion, market segmentation, and diversification make the functional structure inadequate. Some form of divisional structure is necessary to deal with such situations. Basically, work is divided on the basis of product lines, type of customers served, or geographical area covered, and then separate divisions or groups are created and placed under the divisional-level management. Within divisions, the functional structure may still operate.
Exhibit 3 The advantages that a divisional structure offers are:
CEO
Corporate Finance Corporate Legal / PR General Manager General Manager
Marketing Marketing
Operations Operations
Personnel Personnel
Enables grouping of functions required for the performance of activities related to a division.
Generates quick response to environmental changes affecting the businesses of different divisions.
Enables the top management to focus on strategic matters.
The disadvantages of the divisional structure are:
Problems in the allocation of resources and corporate overhead costs; particularly if the business and corporate objectives are ill-defined.
Inconsistency arising from the sharing of authority between the corporate and divisional levels.
Policy inconsistencies between different levels.
Strategic Business Unit
Strategic Business Unit (SBU) has been defined by Sharplin as “any part of business organization which is treated separately for strategic management purposes”. When organizations face difficulty in managing divisional operations due to an increase in diversity, size, and number of divisions, it becomes difficult for the top management to exercise strategic control. Here, the culture of SBU is helpful in creating an SBU-organizational structure.
Conceptually, an SBU is “a discrete element of the business serving specific products-markets with readily identifiable competitors and for which strategic planning can be constructed.” Essentially, SBUs can be created by adding another level of management in a divisional structure after the divisions have been grouped under a divisional top management authority on the basis of common strategic interests.
Exhibit 4 SBU Organization Structure
The advantages that the SBU-organization structure offers are:
Establishes coordination between divisions having common strategic interests.
Facilitates strategic management and control of large, diverse organizations.
Fixes accountability at a level of distinct business units.
CEO
Group Head SBU 1 Group Head SBU 2 Group Head SBU 3
Divisions Divisions Divisions
A B C D E F G H I
CEO
Finance Marketing Personnel Operations
Project Manager A
Project Manager B
Project Manager C
Functional Specialists
The disadvantages of the SBU-organization structure are:
There are too many different SBUs to handle effectively in a large, diverse organization.
Difficulty in assigning responsibility and defining autonomy for SBU heads.
Additional of another level of management between corporate and divisional management.
Matrix Structure
In large organizations, there is often a need to work on major products or projects, each of which is strategically significant. The result is the requirement of matrix type of organizational structure. Essentially, such a type of structure is created by assigning functional specialists to work on a special project or a new product or service. For the duration of the project, specialists from different areas form a group or team and report to the team leader. Simultaneously, they may also work in their respective parent departments.
Once the project is completed, the team members revert to their respective departments.
Exhibit6 Matrix
Organizational Structure
The advantages that the Matrix structure offers are:
Allows individual specialists to be assigned where their talent is most needed.
Fosters creativity because of pooling of diverse talents.
Provides good exposure to specialists in general management.
The disadvantages of the Matrix structure are:
Dual accountability creates confusion and difficulty for individual team members.
Requires a high level of vertical and horizontal combination.
Shared authority may create communication problems.
Network Structure
The increasing volatility of the environment, coupled with the emergence of knowledge based industries, has lead to the creation of a network structure. Also known as the
“spider’s web structure” or the “virtual organization”, the network structure is
“composed of a series of project groups or collaborations linked by constantly changing non-hierarchical cobweb networks”. This structure is highly decentralized and organized around customer groups or geographical regions. Rather than being located in one place, the business functions are scattered far and wide.
The core organization is only a shell with a small headquarters acting as a “broker”
connected to the suppliers and the specialized functions performed by autonomous teams & workforce.
The network structure is most suited to organizations that face a continually changing environment requiring quick response, high level of adaptability, and strong
innovations skills. This structure makes extensive use of the outsourcing of support services required to produce and market products or services. There are few internal resources and a network structure firm relies heavily on outsiders who are specialized in their respective areas.
Exhibit 7 Network Organization Structure
The advantages that the network structure offers are:
High level of flexibility to change structural arrangements in line with business requirements
Permits concentration on core competencies of the firm
Adaptability to cope with rapid environment change The disadvantages of a network structure are:
Loss of control and lack of coordination as there are several partners
Risks of overspecialization as most tasks are performed by others
High costs as a duplication of resources could be there